Attention settled on City financier George Magan following a media report that he has approached banks and private equity groups to secure finance for a bid.

Mr Magan was quoted as saying he has taken a preliminary look at the company, but it would be an exaggeration to claim he was planning a bid. He could not be reached for comment today.

Shares surged nearly 4% in early trading on the back of the speculation, but these gains were halved as analysts played down the likelihood of a full-blown bid materialising.

Richard Ratner, of stockbrokers Seymour Pierce, believed many potential predators would have taken a look at Sainsbury's.

But it was unlikely that anything would happen "given the trading situation, the near £2 billion level of debt and regulatory regime which is unlikely to allow Sainsbury's to dispose of assets as it wishes", Mr Ratner said.

Sainsbury's has slipped to third in the pecking order among UK supermarkets behind Tesco and Asda, with like-for-like sales falling a further 1.1% in the 16 weeks to October 9.

A recovery plan was outlined by chief executive Justin King last week that balanced 750 head office job cuts with the recruitment of 3,000 staff on the shop floor.

The retailer also acknowledged that £3 billion of IT and supply chain changes have largely failed as profits forecasts were cut once again.

Mr Magan, who served as treasurer of the Conservative Party in 2003, has built a reputation as a dealmaker since merchant bank Hawkpoint was sold to NatWest in 1996 for £80 million. He later bought the business back for £20 million.

He is currently chairman of London-based private equity group Lion Capital Advisers and holds a similar role at Mallett, the antique and furniture retailer.

In addition to Mr Magan, potential suitors include private equity group Permira and foreign retailers such as US giant Target.